Level II

There are two applications of delta hedging presented in the CFA curriculum: You have an existing position in the underlying security and you want to hedge that position with options. You have an existing position in options and you want to hedge that position either with the underlying security or with options. I’ll cover both […]

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Occasionally, you will need to know how to compute free cash flow to equity (FCFE) given free cash flow to the firm (FCFF), or how to compute FCFF given FCFE. The formulae are relatively easy, but for sake of completeness I thought that I’d write a short article on them Recall that the formula for […]

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The idea of free cash flow is fairly straightforward: it’s cash flow that a company may use in any way it chooses (within reason, of course; for example, we’ll consider only legal uses here). There are several types of (and, consequently, definitions for) free cash flow. In this article, I’ll describe one of those: free […]

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The idea of free cash flow is fairly straightforward: it’s cash flow that a company may use in any way it chooses (within reason, of course; for example, we’ll consider only legal uses here). There are several types of (and, consequently, definitions for) free cash flow. In this article, I’ll describe one of those: free […]

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The idea of interest rate parity (IRP) is pretty simple. In a nutshell, it says that if you hold a particular currency – say, GBP – and you want to to make a risk-free investment of that currency, you should earn the risk-free interest rate for that currency for the length of time of your […]

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The idea of roll yield – or roll return, same thing – is relatively straightforward: it’s part of the increase or decrease in the value of your portfolio that arises specifically when you roll over an expiring futures or forward contract into a new contract. The other part of that increase or decrease is the […]

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Defined benefit pension cost and pension expense – not the same as each other, by the way – are two topics that traditionally vex Level II candidates, and with good reason: They’re fairly complicated They’re usually explained poorly I cannot make them less complicated than they are, but I can do two things: I can make sure not […]

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As a mathematician, I’ve been trained to write and speak (and, consequently, to think) using precise, accurate terminology. There are, of course, occasions when even mathematicians abbreviate the things that they write or say, but on those occasions: We know that we’re abbreviating, and All mathematicians have agreed to the abbreviations used. As an educator, […]

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If the Level II CFA exam were given as an oral exam, 95% of the candidates would fail. Why? Because they cannot pronounce heteroscedasticity correctly (<het-ter-row-ski-das-tis-sit-ee>, eight syllables), and they cannot pronounce Modigliani correctly (moe-dill-yaw-nee>, four syllables). Later in this article, we’ll hit upon another: homogeneous (<hoe-moe-gee-nee-us>, five syllables). Fortunately for most Level II candidates, it’s a […]

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No discussion of conservative methods vs. aggressive methods would be complete without a clear definition of what we mean by these two categories of methods. Therefore, let’s start there: Conservative accounting methods are those that report lower net income in the current period, and (potentially) higher net income in future periods. Aggressive accounting methods are […]

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I have now used Bill for Levels II and III, and he has always been very helpful to me in my weak spots! I highly recommend him for his one-on-one Skype tutoring...he will work with you for as long as you need, and he is extremely patient. Best of all, he loves to teach, and it comes across in his interactions.